Thus far, 2020 hasn’t been kind to Coffee Bulls – Coffee Futures hit their 2020 high on 01/02 and then proceeded to trade down to an all-time low in mid-June. Even with such a bearish backdrop, we find ourselves with a sentiment setup that could lead to a sharp countertrend rally over the next few weeks.
Last Friday, sentiment on Coffee Futures closed at 22% Bulls, which was up +7% Bulls from the previous trading session. Since 2006, Coffee Futures closed between 16-28% Bulls after gaining between +6-8% Bulls the previous trading session only nine other times. Of those nine instances, five of them resulted in multi-week rallies which reached an average gain of 13.4%. While the winning percentage of this set of trades isn’t overly impressive, the low risk/reward ratio makes it a compelling setup – one that we are going to take.
Here’s how we’re going to trade this bullish setup:
- Place a GTC Buy Limit order for $KC_F (Sept) at 100.50
- Once that order is filled:
- Place a GTC Stop Loss order for $KC_F (Sept) at 98.25
- Place a half size GTC Sell Limit order for $KC_F (Sept) at 108.50 (first Profit Target)
- Once first Profit Target is hit:
- Place GTC Stop Loss order one tick below the lowest price of the past three trading sessions and continue to modify that order as the position plays out